Solar projects in India eyeing a crisis; viability under question now

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Mumbai | Published: November 22, 2017 5:18:21 AM

Wind sector too is facing headwinds with very limited progress on the process of inviting bids for projects by the state owned distribution utilities.

The level of solar power tariffs witnessed a sharp reduction in the last six months, with the lowest tariff falling to Rs 2.44/kWh in the May 2017 Bhadla solar park auction in Rajasthan. (Reuters)

The viability of solar projects bid at below Rs 3/mWh may be adversely affected if the increase in solar panel prices by 6-7 cents/watt sustains over coming quarters, said ratings agency Icra on Tuesday. The level of solar power tariffs witnessed a sharp reduction in the last six months, with the lowest tariff falling to Rs 2.44/kWh in the May 2017 Bhadla solar park auction in Rajasthan. “However, the recent increase in imported PV modules by 6-7 cents/watt if sustained, could have an adverse impact on the viability of solar power projects with tariffs lower than Rs 3.5 per unit,” the Icra report said. ICRA estimates, a 6 cent/watt increase in the PV module price would result in an increase of about 11% in the capital cost, which in turn is estimated to result in a decline in cumulative average debt service coverage ratio (DSCR) by 0.12 times and a decline in project IRR by 180 basis points for a solar power project with a tariff of Rs 2.5 per unit. Sabyasachi Majumdar, senior V-P and group head, Icra, said, “The bidding activity for award of solar projects has slowed down in 2017 (till October) as reflected in awarded project capacity of 3.75 GW against 7.2 GW a year ago. This is also in the midst of GST roll-out from July 1 2017, an upward pressure on PV module price level in recent months as well as the finalisation of the new bidding guidelines for award of solar projects in August 2017.”

Wind sector too is facing headwinds with very limited progress on the process of inviting bids for projects by the state owned distribution utilities. “The capacity addition in the near term remains adversly impacted due to migration from feed-in-tariff to bid tariff route,”the report adds. The ratings agency believes for a wind power project with a tariff of Rs 2.64 per unit, the cumulative debt service coverage ratio is estimated to be 1.1 times and internal rate of return of less than 5%, assuming a capital cost of Rs 7 crore per MW, PLF of 30%, cost of debt at 9.25% with 20 year tenure post CoD. “The viability of competitively bid tariffs (in wind and solar) would thus depend on capital cost, PLF and debt structuring including cost of debt,” the report said. However, the report is hopeful of the long-term demand outlook for renewable energy (RE), which is aided by favourable policy support from both the government of India and the state governments of key states, as well as improving tariff competitiveness of wind and solar power. Also, the revised bidding guidelines approved by the Centre for solar power projects remain favourable for the sector, it said.

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